To all: Time to dump Intel?
From: ZDNet News Channel
What's wrong with Intel?
The company's product pipeline remains full, and with no sign of ebbing
demand for personal computers, Intel's long-term prospects remain
bright. But the lackluster performance of the company's stock recently
is making investors pause. Intel's shares finished Wednesday down 3
1/2 points to close at 95 5/8. In addition, the FTC late in the day
launched an antitrust probe against it.
With the exception of a brief pullback in mid-August, technology stocks
have enjoyed a fabulous run in the past four months. But Intel has been
a wallflower during the party since reaching its 52-week high of
$100.50 per share in mid-August, the stock has flattened out for no
apparent reason.
Consider since June 2, Intel's stock has climbed from about $70 per
share to $98 per share, a 25% increase while shares of Compaq
Computer Corp. and Dell Computer Corp. have surged 95% and
80%, respectively, in the same period.
So what's the problem?
"From a technical perspective, it's typical for a stock like Intel trading
near $100 per share and approaching its next quarterly results to take a
bit of a rest," said William Kurtz, an analyst at H.G. Wellington.
"Stocks tend to rotate and big brokers are putting more emphasis on
some of the other blue-chip stocks and staying away from the more
aggressive NASDAQ."
The stock has grown considerably in the past year, practically doubling
from $47.72 per share to $95. But nagging questions about technology
transitions and declining market share has cast Intel in an unfamiliar role:
underdog.
It's hard to believe that Intel, which owns roughly 85% of the
worldwide microprocessor market, could actually be labeled
overvalued by some market mavens. Some brokers have even gone so
far to suggest that investors might enjoy a healthy return by short-selling
Intel's stock, essentially gambling that its price will drop.
Adrian Stecyk, managing director of Griffin Management Corp. in New
York, last month went on the record with his radical analysis.
"We feel that, based on supply and demand for the stock and the selling
of large blocks of stock, Intel is a good short-sell play at this time," he
said. "Nobody wants to say they recommend short-selling Intel because
they are so dominant and will continue to dominate. But for now, the
stock is overvalued."
Another factor that might be turning off bullish Intel investors is the
traditionally conservative sales and earnings estimates supplied by Intel
officials.
After posting $6 billion in sales in its second quarter and returning a
profit of $1.6 billion, or 92 cents per share, company officials
dampened the mood by predicting flat to slightly up sales and gross
margins in the third quarter.
"Intel's management is very shrewd," said an analyst who spoke on the
condition of anonymity. "They aren't going to say anything or oversell
themselves... Other companies, Compaq comes to mind, make these
fantastic revenue projections and that gets the stock moving. But Intel's
a little more conservative so novice investors tend to be gun shy."
Both Dataquest Inc. and International Data Corp., two preeminent
market research firms, figure PC sales to explode through the year
2000. Sales increases, year over year, could reach the 20% mark.
Intel, it would seem, stands to gain as much if not more revenue than
the PC makers. Without Intel's chips, the Compaqs and Dells can't
offer premium machines at competitive prices.
"I don't see anything fundamentally different with Intel now as opposed
to three or six months ago," Kurtz said. "They have plenty of room for
new products in the fourth quarter. Once people start seeing their third
and fourth quarter numbers, I expect the stock will react favorably."
By Larry Barrett
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